Corporate governance and access to interest bearing debt

Abstract

Purpose The purpose of this paper is to extend the growing body of literature on the impact of corporate governance on debt contracting by examining if better governance is associated with access to interest bearing debt. The paper aims to explore whether no‐debt companies have governance structures that are qualitatively different to debt companies within a market with a distinct corporate finance structure, such as Australia. Design/methodology/approach The analysis is portioned into two stages. The first stage focuses on univariate analysis which includes descriptive statistics and analysis of variance (ANOVA). The second stage introduces multivariate analysis, in the form of a probit regression model, to test the relationship between corporate governance and access to interest bearing debt. Findings The results suggest that companies with higher levels of corporate governance are more likely to access interest bearing debt relative to no‐debt companies. However, the unexpected finding is that only resource companies that implement higher governance are more likely to access interest bearing debt. The core driver is that resource companies with no‐debt have systematically lower governance than all other companies. Research limitations/implications The cross – sectional design of the study is limited in its ability to shed light on the question of causality. One potential avenue is to develop an event study around the timing of governance and debt access changes. Originality/value The paper contributes to the extant literature by investigating the relationship between governance and access to interest bearing debt in the understudied Australian debt market.